Market potential and sales representative effectiveness are but two of the basic determinants of sales results in a territory. To measure sales representative performance, it is necessary to take into account some of the other factors which influence sales results. One study of a national sales organization found that six factors explained 72 percent of the variation in sales among territories. These factors and the methods of measuring them are the following:
1. Market potential
2. Territory workload
3. Experience of sales representative
4. Motivation and effort of sales representative
5. Company experience
6. Company effort
Method of Measurement:
1. Industry sales (units) in territory
2. Weighted index based on annual purchases and concentration of accounts.
3. Length of time employed by company (months)
4. Aggregate ratings by field sales manager on eight dimension of performance
5. Weighted average of market share past four years
6. Market share trend same period.
7. Advertising dollar expenditure in territory.
While sales potential is a key factor in establishing sales quotas, and other measurable factors such as those listed above also play a role, it should be remembered that the setting of quotas also involves a complex interpersonal relationship between the sales manager and the salesman. The best quota is the one that stimulates the best effort by the salesman. Since salesmen vary in personal reaction to the challenge and risk implied by quotas, the successful manager is one who can adopt the objectively determined quota to each individual salesman.
Methods for Measuring Market Potential:
Two major methods are available for estimating market potentials. One of these involves the use of direct data that is, data on the actual product for which one wishes to estimate potentials. The other method involves the use of corollary data – data related to, but different from, the product at hand. Corollary data methods can use single or multiple factors, and the latter can be combined in a variety of ways. The more important variations are discussed in the following pages:
Direct Data Method: Total industry sales of particular type of product can be used as the basis for estimating market potentials for one brand of that product.
Comparison of potential sales with actual sales indicates this company is weak. It might b concluded that management should exert itself in the weak areas where the firm has not been able to obtain its proper sales. Such a conclusion, however, does not take into account the cost of exploiting these deficit areas. Therefore, it cannot be stated categorically that it will be profitable to attempt to reach potentials in such territories. Local competition may be unusually stiff in some areas. There is disagreement as to whether a company should concentrate its sales effort in its weak or strong territories. An analysis such as the above, however, will highlight those areas that need to be investigated to determine why the company is not obtaining its share of the market. This is the first step in deciding what action, if any, should be taken.
Total industry sales data may be obtained in some cases as a result of licensing or the imposition of taxes. For example, all states impose taxes on liquor and gasoline, and these receipts can be used to estimate that total gasoline and liquor consumption by states. Trade associations frequently compile total industry data by having their members report shipments. An excellent guide to many sources of information useful to firms involved in estimating market potentials is the federal government publication Measuring Markets.
The principal advantage of using total industry sales to measure market potential is that actual results (sales) are being used. The method is straightforward and does not require as much clerical work as do some of the other methods.